Adopting a sustainable fashion strategy to combat labour cost inflation
by Coats Digital
In this piece we reflect on the main strategies being considered to combat labour cost inflation in the fashion supply chain.
Will the hunt for the cheap needle end in Africa, or does the answer lie in automation and robotics? Intense competition and concerns over cost inflation continue to present significant challenges for the fashion industry. A recent survey by Deloitte estimates that by 2020, labour will comprise approximately 40% of total apparel costs.*
Is the hunt for the cheap needle finally coming to an end?
Businesses are now realising that simply relocating and otherwise doing things in the same way they always have is not a sustainable solution in an increasingly competitive environment.
In China, for example, many export manufacturers have pursued offshore strategies to balance rising costs and have moved some production overseas to countries such as Cambodia, Vietnam and Bangladesh. However, China still controls more than 40% of the total global export market, and buyers and suppliers are starting to question whether such a large proportion of the world’s supply can realistically be relocated in just a few years.
In any case, with costs rising quickly in markets like Vietnam, and the competition for labour becoming more intense as high-tech manufacturing and the service industry expands, the benefits of cheaper labour will be short-lived. As a result, there has been a noticeable increase in activity in China towards determined productivity and cost efficiency initiatives, even where this involves significant changes to established working practices.
The benefits of cheaper labour will be short-lived
One such example is Esquel Group, which recently invested RMB 2 billion in a new factory in Guilin, where state-of-the art equipment, business processes and management tools are being used to boost productivity. Their commitment towards environmentally-friendly production facilities has created further efficiencies and helped to cut operating costs.
Elsewhere, businesses that have traditionally pursued very effective offshore strategies, including the larger Korean, Taiwanese and Hong Kong-based contractors, are now turning their attention to productivity improvement and best operating practices, using LEAN techniques and knowledge adapted from the electronics and automotive sectors.
Businesses that have traditionally pursued very effective offshore strategies are now turning their attention to productivity improvement and best operating practices.
What about Africa or Bangladesh?
Ethiopia is the latest new frontier, but businesses that have established a presence there are not just looking at the benefits of lower labour costs. Instead, these businesses are taking the opportunity to set up world-class factories with the very best processes, machinery and environmental solutions. They are future-proofing their investments to factor in inevitable wage cost increases and compliance requirements from the very start.
In Bangladesh, despite the negative press on safety issues in recent years, there are many excellent, forward-thinking business investing in LEED certified factories, technology and also developing new product lines, signalling a shift from the basics that Bangladesh is known for.
These are all businesses to watch – they already have significant labour cost advantages, but are actively investing to further improve their position.
Does the solution lie in automation and robotics?
The larger, more financially-capable and forward-thinking players in various markets are also investing heavily in the automation of their manufacturing processes. However, while the adoption of new technologies is vital for pushing the boundaries of what is achievable, it is by no means a silver bullet for addressing the multifarious challenges faced by the global apparel industry.
While the adoption of new technologies is vital for pushing the boundaries of what is achievable, it is by no means a silver bullet for addressing the multifarious challenges faced by the global apparel industry.
For a start, only certain products and market sectors lend themselves to such a high level of engineering and automation. For example, based on the current capabilities of these technologies, the return on investment is only worthwhile for designs that remain relatively unchanged over time.
Additionally, to really benefit from such a significant investment, businesses need other strong fundamentals in place – from business processes to manufacturing methods, planning, coordination and control. Fundamentals that many in the industry are still grappling with.
Effective planning, coordination and communication is key to enhancing productivity and operational efficiency
There are some vital areas that many manufacturers have so far largely continued to overlook, which offer huge opportunities to improve productivity and reduce overhead costs. We believe the most significant of these is that of effective planning, coordination and communication.
Focusing on improving planning, coordination and communication presents a significant opportunity for businesses to start moving towards an improved performance model that today’s buyers and the market demand.
For many businesses in the industry, the Production Planning and Control (PPC) and management process remains disconnected, fragmented and intensely manual. Planning is not realistic enough and is based on too many overly simple rules and averages. As a result, ‘on time production start’ is a constant challenge for many businesses, due to the lack of clear, coordinated priorities and poor communication during the pre-production stage. This often results in resorting to firefighting to maintain production flow and deliveries. This inefficient way of operating affects both cost efficiency and the ability to deliver on time.
Focusing on improving planning, coordination and communication presents a significant opportunity for businesses to start moving towards an improved performance model that today’s buyers and the market demand. With unparalleled reach throughout the fashion supply chain, Coats’ software solutions and expertise can help retailers, sourcing companies and manufacturers improve their business performance.
* Deloitte, 2015–2016 Private Label sourcing survey: Shifts in countries and capabilities
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